Clearing House Function of RBI
The Reserve Bank of India’s work related list is so long! The Reserve Bank of India take most of necessary Indian Economy related decisions. This make them one of ultimate authority for management of Indian economy. Clearing house function of RBI is one of work of RBI. To know about clearing house function of RBI, we need to know about what is clearing house!
The clearing house is a mediator between two or more companies/ entities that are engaged in financial transactions. In India Reserve Bank of India work as clearing house between commercial Banks whose statutory account with RBI. Normally the Central Bank perform clearing house function in their respected countries. The RBI perform clearing house function between scheduled banks which avoid transfer of Cash between scheduled Banks.
The Reserve Bank of India has clearing houses at Ahmedabad, Bangalore, Bhubaneshwar, Mumbai, Calcutta, Chennai, Guwahati, Hyderabad, Jaipur, Kanpur, Nagpur, New Delhi, Patna and Thiruvananthapuram. The clearing house clear the Cheque related transactions among the scheduled Banks. The Clearing houses give membership to direct members and sub members.
The clearing Houses function start with the Clearing process. The customer deposit the cheque in Bank for the financial transaction. If there is fund available against the cheque then cheque is passed and settlement done. Otherwise the cheque is returned and called as Return clearing.
The clearing house make the transfer of credit at economical rate and settle Bank’s transactions easily. As the shown in Image, The Retail, Large value and securities related transactions between two Banks, The Reserve Bank of India play role of clearing house between them. This type of transactions known as inter Bank transactions.
The most of Clearing Houses managed by State Bank of India & it’s associate Banks. The reserve Bank of India and nationalized Bank’s also manage less number of clearing houses. The Clearing house function of RBI done by computerized process. As we talked earlier, The reserve Bank of India work as Banker between Banks.
The Reserve Bank of India provide credit facilities to the Bank at Bank Rate on sell of securities, Trade bills. The clearing house promises that all the transaction will be settled with each parties regarding their settlement dues.
RBI’s role of Credit Provider
The Reserve Bank of India known as emergency fund provider for the member scheduled Banks. The Reserve Bank of India take necessary actions to maintain the public trust on Indian Banking system. The Yes Bank (2019-2020) and ICICI Bank (2008) crisis are example of how RBI help the commercial Bank.
In 2008, The Lehman crisis created ripple effect in Indian Economy. The ICICI Bank invest their some money in Lehman Brothers. There was fear among ICICI Bank’s money depositors. There were rumor in Market against the ICICI bank. The financial Health of ICICI Bank was good at that time, only there were rumors. The customer’s of ICICI Bank rushed to withdraw their cash deposits from the Banks.
The ICICI bank then approached Reserve Bank of India for the emergency cash. As we know that most of money of Bank deposits are in electronic form. The cash on Hand in Bank Branch always at less level. To maintain public trust, The Reserve Bank of India provided emergency cash currency to the ICICI bank.
The clearing house function of RBI ensure that there will be settlement for the transactions between the commercial Banks. The Reserve Bank of India do clearing house function with the help of 860 clearing houses situated in different part of India. The Reserve Bank of India manages the payment and settlement system of our country.